New Zealand's crypto salary plan is a big win for Facebook Libra


Why get paid money each month, when you can earn in cryptocurrencies instead? New Zealand has become the latest country to lay out how cryptocurrencies would be taxed, making it easier for companies to pay salaries using such digital assets. But just because you can be paid this way, it doesn’t necessarily mean you should.

To start, most of the headlines proclaiming that New Zealanders can now finally have their salaries paid in bitcoin aren’t accurate: they could always do that. Robert Kirkby, lecturer at Victoria University of Wellington’s school of economics, says the formal ruling from New Zealand‘s tax authority, the Inland Revenue Department (IRD), came after a request for advice on how to fill out tax returns when being paid in cryptocurrency. In other words, people in the country were already being paid this way.

And they’re not the only ones. CoinCorner, a bitcoin exchange based in the Isle of Man, lets staff choose to have a portion of their salary in bitcoin; all get some portion paid in bitcoin, but only one of the 14 employees takes their full pay packet that way, the company says. Japanese internet company GMO Group began offering a similar system in 2018, offering a portion of pay in bitcoin (the company couldn’t be reached for comment on how the experiment was progressing). And, last month, Facebook’s blockchain chief David Marcus told a Senate committee that he would take his entire salary in Libra, the company’s own digital currency, if and when it’s approved by regulators.

There are caveats to the New Zealand ruling, however. According to the IRD, only full-time, official employees on a fixed, regular salary can be paid via cryptocurrencies, not freelancers. And the cryptocurrency must be a “stablecoin” that operates like cash, rather than an asset — and bitcoin is still viewed as the latter, Kirkby says.

Like most other countries, New Zealand handles income tax differently for wages paid in money and those paid in assets, such as shares. “[The IRD] had previously said that cryptocurrencies should be treated as assets and taxed as such — same as how you would be taxed if you got paid in shares,” Kirkby says. “The new ruling essentially says that if you get paid in a ‘stable cryptocurrency’ then it will be taxed the same as being paid in money.”

“In New Zealand, if you are paid in shares you pay ‘fringe-benefit tax’, while if you are paid in money you are paying ‘PAYE (pay as you earn)’ tax.”

The question comes down to whether a particular cryptocurrency is seen as money or as an asset. To be seen as money and used as a salary, the tax authority said that a cryptocurrency must not have a “lock-up period,” which is when coins can’t be traded or sold at specific times, and be able to be converted directly into a government-issued currency. Plus, it must either function like a currency or have its value pegged to that of a fiat currency, like the dollar or the pound.

“Note that under this ruling, bitcoin will still be taxed as an asset, same as being paid in shares, so there is actually no change whatsoever if you are paid in bitcoin,” Kirkby notes. There aren’t many “stablecoins” that fit the bill as described by the tax authority. “Potentially, though, this could change next year if Facebook does introduce its proposed Libra currency, as this is intended to be exactly such a currency, pegged to a basket of currencies.”

In the UK, there is no law that would prevent companies from paying in bitcoin. “Although the law in the UK isn’t explicit, it is generally accepted that employers can pay their staff in cryptocurrency in the UK, as HMRC has produced guidance for employers on how to treat cryptocurrency for income tax purposes,” says Kathryn Dooks, an employment partner at law firm Kemp Little.

In other words, you do still have to pay taxes on any income, even if it’s tucked away in a cryptocurrency wallet. “If the employer isn’t also paying cash alongside the cryptocurrency, then the employer will need to recover PAYE [Pay As You Earn] tax and national insurance contributions on the value of the cryptocurrency from the employee, as it will not be able to make deductions direct from the non-cash cryptocurrency itself.”

Dooks says that paying in cryptocurrency may have other challenges for companies, in particular minimum wage obligations in case the value of the currency falls. On the flip side, if the value goes up, employees being paid in cryptocurrency have complications their pounds-receiving colleagues won’t face. “Employees may need to pay capital gains tax when they sell or cash-in their cryptocurrency, if it has risen in value,” Dooks notes.

Most other countries would allow cryptocurrencies to be used to pay salaries, Dooks notes, but the US is different — which may scupper Facebook’s Marcus’ plan to be paid entirely in Libra. “In the US, in theory at least, it’s not currently possible to pay an employee entirely in cryptocurrency because the provisions of the Fair Labor Standard Act requires that minimum-wage and overtime payments must be made in US dollars,” she says. However, incentives such as bonuses can be paid in cryptocurrency, and if an employee’s entire salary was paid in such a way, problems would only arise if they brought a claim against their employer – unlikely, given that such schemes are so far opt-in only.

But just because you can be paid in cryptocurrency, doesn’t mean you should. Kirkby notes that being paid in an asset-like cryptocurrency such as bitcoin is similar to being paid in shares, with the risks and rewards that may offer. “It is a good idea if you are willing to take on the risk, and think that the assets are likely to appreciate in value,” he says. That’s particularly true for people working for a crypto-business, as paying in the company coin is similar to paying shares. “For the business, it has the advantage of giving your employees a stake in the success of your company and so incentivises them to make sure your company succeeds. For the employee, it means if you go to work for a start-up, and that company succeeds, then you get to share in the rewards.

However, the Facebook-backed Libra has been designed as a stablecoin. This means its value will be tied to real-world assets – backed up by low-risk government securities held by the governing body, the Libra Association. As a result, it’s planned that Libra won’t see the huge fluctuations that Bitcoin saw in 2017. If the coin is pulled off, it would be a safer digital currency to get paid in.

Otherwise, there’s not much point to being paid directly in cryptocurrency. “From [an] employee’s perspective, it is unclear in most situations why you would prefer this to getting paid in standard cash and then just using that to buy assets,” Kirby notes. Indeed, CoinCorner co-founder Daniel Scott explained over email that it’s not as though staff are paid a specific amount of bitcoin. Instead, employees are paid a set amount in pounds, but that’s translated into bitcoin based on the exchange rate at midnight the day before payday. “Aside from a few minor accounting issues – typically, accounting software does not take things like the fact that bitcoin can be divided down to eight decimal places – we’ve found that paying our staff in Bitcoin is pretty much the same as paying our staff in any other currency,” he says. “The fundamentals are the same and really, it’s a lot easier than people think it is.”

Being paid in cryptocurrency directly could save exchange costs and might make international payments easier, if the company and employee are in different countries, and it could well make avoiding taxes easier too, Kirkby notes. It could also help with anonymity, as the money doesn’t have to flow through an individual’s bank account first.

Kirby said he’d consider receiving some of his pay in a cryptocurrency, in particular to be used when travelling – but only if “a stable and widely used coin” existed. Forget regulations and tax law, the lack of a reliable cryptocurrency may well be what’s really holding back crypto-salaries. That’s good news for Facebook’s Libra.

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